Alabama

Layaway plans make a comeback as credit woes continue

(AP Photo/Montgomery Advertiser, Amanda Sowards)Mike Chambers is seen at Chambers Furniture in Montgomery, Ala. on Oct. 7, 2009. Chambers said credit turndowns are happening more often in his store. His staff can steer a disappointed customer to layaway, but he said only a small percentage take the opportunity.

MONTGOMERY, Ala. -- Layaway is back, and if one national
retail chain is correct, it will be a major force in this year's
holiday shopping.

Once a standard in department and specialty stores, layaway all but vanished with the rise of easy consumer credit.

Extended
interest-free financing led to instant gratification for consumers, but
in-store financing no longer is the sure bet it once was.

That
means layaway is back on the retail scene. In a typical layaway
transaction, a buyer selects an item and makes a down payment, usually
around 20 percent of the purchase price.

The item is taken off
the shelf and put in a special area. The consumer makes payments
according to a contract and can pick up the item when the total is paid.

Generally,
there is no finance or other charge associated with the purchase, but
the deal must be completed within a specified period.

Some Montgomery retailers say they offer the service and are seeing at best a modest increase in demand.

National
retailer Sears/Kmart not only promotes the service, but is expanding it
to include an online layaway program that allows the customer to pick
an item, pay for it over time on a Web site, then pick it up at a local
retail store.

"Sears brought it back last holiday season," he said. "Our customers said it would be a great service."

Kmart was pretty much alone among national retailers in never dropping the service.

Cohen's Electronics has always offered layaway, but Michael Cohen said demand has been limited for a while.

He said easy credit and the desire for buyers to get it quick led to the downturn in choosing layaway.

"Everybody wants it right now," he said.

That is especially true on electronic items such as flat-panel televisions. Those don't make good layaway items, Cohen said.

Price
and technology changes so quickly on televisions that by the time a
layaway is paid off, it is no longer the most up-to-date model. As
models get even a little age, the price can go down.

That leaves
both the buyer and the seller with some risk. The buyer may put an item
on layaway, and when it is paid off 90 days later, the price could have
dropped by several hundred dollars.

On the other hand, if the
buyer does not redeem the item from layaway, the seller may have to put
an out-of-date model back on the showroom floor at a deeply discounted
price.

If a customer wants a television under a layaway plan,
Cohen said he would suggest the customer put money in savings until he
or she has enough for the preferred set.

Other items, such as appliances, are more appropriate for layaway.

Cohen said he would hold an item on layaway for a customer as long as payments are made and the item is a current model.

Many customers will come in and apply for in-store credit, he said.

Cohen's,
like most other retailers offering credit, does not lend money, but
contracts with a third-party lender. Those lenders, like many others,
have tightened credit standards, and that leads to more declined
applications.

Cohen said when he informs a customer the credit is denied, they often go elsewhere to make the purchase.

Elsewhere, for many, can include a trip to a rent-to-own establishment.

Mike
Chambers of Chambers Furniture said credit turndowns are happening more
often in his store. His staff can steer a disappointed customer to
layaway, but he said only a small percentage take the opportunity.

"We offer that," he said. "The last six months we have had more turndowns."

Layaway helps close some deals, but many customers simply leave the store, he said.

"A lot of them don't make the purchase," Chambers said.

While
many retailers see layaway as a holiday-based promotion, Sears/Kmart is
getting more calls for the program throughout the year, Aiello said.

At
some stores, he said, customers put school supplies on layaway at the
beginning of the summer in order to have them paid off by the time
school opened.

According to Kmart, demand for the company's
layaway program has double-digit growth over the last year. That was
one of the reasons the retailer took the deal online.

"We have an
entire generation of customers that grew up shopping online," chief
marketing officer Mark Snyder said in a news release. "Launching online
layaway at Kmart engages these customers by allowing them to spread
their payments out over time and better plan their spending."

Sears also recently introduced a new take on another old holiday shopping habit, the Christmas club.

Sears
stores offer what amounts to a gift card that customers can purchase
and then add cash value to over time. Sears will add a 3 percent bonus
to the card's value on Nov. 14 to encourage shoppers to put cash on the
card.

Aiello said the card is good at all stores under the Sears umbrella.

"That gives customers a lot of flexibility," he said.

(This report was written by Cosby Woodruff of the Montgomery Advertiser.)